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Obama Punts on Fannie and Freddie in State of the Union Speech

NEW YORK (TheStreet) --Fannie Mae  (FNMA) and Freddie Mac  (FMCC) reform efforts were notably absent from President Obama's State of the Union speech Tuesday night, an omission that is likely to disappoint parties looking to dismantle the housing giants.

"By not mentioning Fannie Mae and Freddie Mac, we think he signaled that the issue is not a priority for the Administration," wrote KBW Washington analyst Brian Gardner in a report published shortly after the speech Tuesday night.

Obama scarcely mentioned housing at all during the speech. He stated merely that "the most important investment many families make is their home," and asked Congress to "send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations."

Home ownership currently is heavily subsidized by the government, and while many members of Congress and President Obama himself at times have indicated they want to reduce those subsidies, most are afraid to act for fear of crashing the still-fragile U.S. economy.

"Keeping the dream of homeownership alive," implies a continued government subsidy, while protecting taxpayers from footing the bill implies either larger capital cushions for Fannie and Freddie or shifting the risk to private entities that would be very conservatively capitalized or somehow would not grow too big to require a bailout if they failed.

Despite the paucity of details offered by the President, the Financial Services Roundtable -- Wall Street lobbying group -- picked up on his statement to make one of its own.

"It is encouraging the President called for action on the critical issue of housing finance reform," said Tim Pawlenty, CEO of FSR. "Reforming Fannie and Freddie so that taxpayers are no longer on the hook is critical and the time to act is now."

It is mildly interesting that the FSR argued for "reforming" Fannie and Freddie, while the President had said in a speech in August that he wanted to wind them down.

But only mildly. Notwithstanding legislative reform proposals in both houses of Congress, substantive action appears to be many years off.

Stock quotes in this article: FNMA, FMCC 
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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